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What Is a Business Valuation and When Do You Need One?
What is a business valuation?
A business valuation is an independent analysis that estimates what a business is worth. Credentialed valuation professionals evaluate financial performance, assets, liabilities, industry conditions, future earnings potential, and comparable market data to determine value. It provides an objective estimate of value on a specific date and is used for transactions, financing, tax reporting, legal matters, and strategic planning.
A valuation is more than a number. It explains how value is determined, what assumptions were made, and which factors most influence the result. The conclusion represents an informed opinion of value based on established valuation standards—not simply what a seller hopes to receive or what a buyer is willing to offer.
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When do you need a business valuation?
Business valuations are commonly performed for:
- Selling a business
- Buying a business
- SBA loan applications
- Estate and gift tax planning
- Succession planning
- Shareholder buyouts
- Divorce proceedings
- Raising investment capital
- Strategic planning
Many owners wait until they're preparing for a sale to understand their company's value. In practice, valuations are equally useful for making better decisions years before a transaction occurs.
Who performs business valuations?
Business valuations are typically prepared by professionals with specialized valuation credentials such as Accredited in Business Valuation (ABV), Certified Valuation Analyst (CVA), or Accredited Senior Appraiser (ASA).
For tax reporting, litigation, or SBA lending, valuations are generally expected to follow recognized professional standards published by organizations including the AICPA, NACVA, and the American Society of Appraisers.
What valuation methods are used?
Professional valuation analysts generally rely on one or more of three accepted approaches.
- Income Approach. This approach estimates value based on the future cash flows a business is expected to generate, adjusted for risk.
- Market Approach. This approach estimates value by comparing the business to similar companies that have recently sold or are publicly traded.
- Asset Approach. This approach determines value by calculating the fair market value of the company's assets less its liabilities.
The appropriate approach depends on the nature of the business, the available information, and the purpose of the valuation. For owner-operated businesses, the market approach is the most relied on by buyers and lenders.
What information is needed?
Most valuations require:
- Three years of financial statements
- Business tax returns
- A current balance sheet
- Information about products and services
- Customer concentration
- Organizational structure
- Industry background
Complete and accurate information allows the valuation analyst to produce a more reliable conclusion.
How long does a business valuation take?
Most professional business valuations are completed within 5 to 10 business days after all required documentation has been received. Complex businesses or valuations prepared for litigation or tax purposes may require additional analysis.
The bottom line
A business valuation provides an objective estimate of what a business is worth using established financial methodologies and professional judgment. Whether you're planning for growth, obtaining financing, preparing for a transaction, or meeting a legal requirement, understanding your company's value creates a stronger foundation for decision-making.
At Wisable, we believe business owners make better decisions when they understand what drives their company's value. Whether an owner is years away from selling or actively exploring an exit, a business valuation provides the context needed to evaluate opportunities with greater confidence.
Ylang knows the tools small business owners actually use, and the gaps that slow them down. She spent five years building software for SMB owners navigating insurance, payroll, and HR, and brings that operator's lens to Wisable, where she's focused on making the path to a successful exit clearer and less painful. Ylang holds an MBA from INSEAD.
